But Capitalism Gets the Blame!?!
At root, this crisis was caused by state error. Governments and economic ideologies rigged the system in favour of debt. City and Wall Street banks were pushed into behaving with reckless abandon. They took part shamelessly, of course. But their antics were merely symptoms of a deeper problem.
Needless to say, this is not the perception in North America or Europe. It already looks as if the political response will be a massive assault on the workings of the free market. Socialism is coming back. One wants to weep.
I report and link. You decide. - BJon
Some trust in chariots, and some in horses: but we will remember the name of the LORD our God. - Psalms 20:7
From a Telegraph [UK] article, Governments caused the credit crisis:
Governments caused the credit crisis, but capitalism gets the blame [/] By Ambrose Evans-Pritchard [/] Last Updated: 8:31am BST 08/08/2008
State error led banks to ignore the lessons of history and overdose on too-cheap money, writes Ambrose Evans-PritchardThree years ago, the world's top watchdog warned that the global economy was veering out of control. Defending orthodoxy against the easy debt policies of the Greenspan era, the Bank for International Settlements said interest rates were being held too low for safety in most of the mature economies.
America had embarked on an unprecedented experiment. The US savings rate had fallen to near zero for the first time since the Slump. The current account deficit had reached levels that were incompatible with the dollar's role as the anchor of the global system. [/] The rising powers of Asia were preventing adjustment by holding down their currencies, and flooding the world with cheap credit in the process. Incipient bubbles were ubiquitous. "Most industrial countries are showing symptoms of over-heating in the housing market," it said. [/] New-fangled securities were allowing banks to take "highly leveraged positions". It was unclear how these untested inventions would "handle a string of credit blow-ups".
"One simply cannot ignore the number of indicators that are now simultaneously exhibiting marked deviations," concluded the BIS. That was in June 2005. [/] Regrettably, governments did exactly that. They ignored manifest risks. Real interest rates were held near or below zero in the US and a large arc of Europe until well into 2006.
By then, the damage was done. US housing had succumbed to full-fledged mania. Variants were emerging - later in the cycle - across the Anglo-Saxon world, the Baltic, Club Med, and Eastern Europe.
What occurred was a fatal cocktail, a mix of too much and too little government intervention at the same time. Bureaucrats (central banks) held down the price of credit: other bureaucrats (regulators) turned a blind eye to the excesses that cheap money caused in mortgages and the "shadow banking system" - that $3 trillion nexus of structured credit. Northern Rock continued to offer 125pc mortgages. Honey-trap "teaser" loans continued to ensnare Americans.
Former Federal Reserve chief Alan Greenspan now says the world faces a "once or twice in a century event". Faith in the financial system has been called into question. Taxpayers will have to rescue more banks. Missing is any hint of apology for his role in incubating this crisis as monetary overlord for 20 years.
[...] The Fed could have done a great deal to offset the tsunami of Asian money by squeezing liquidity at home. It chose not to do so. Mr Greenspan and his protégé, Ben Bernanke, saw no need to act because inflation was tamed. [/] Cheap Asian goods flooded the world, keeping a lid on inflation in the West. It lulled the central banking fraternity into a false sense of security. As they slept, the excess money found its way into asset booms. This was the "Great Error".
[...] Critics say the rescues have failed. One can only ask what would have happened if nothing had been done. There is no "solution" to this crisis. The task now is to keep the ship afloat as debt defaults run their awful course. [/] It will be a long work-out. Japan has suffered its Lost Decade, with the worst pain in the second half. Don't assume the Anglo-Saxons and Club Med will get off more lightly. Japan started its descent as top creditor, brimming with reserves and savings. Westerners go down empty.
Henceforth, we must design out asset bubbles. The BIS suggests a credit speed limit of sorts. Old-fashioned monetarists say the debacle could have been avoided if we had paid more heed to the M3 and M4 money supply. These aggregates blew the whistle three years ago.
At root, this crisis was caused by state error. Governments and economic ideologies rigged the system in favour of debt. City and Wall Street banks were pushed into behaving with reckless abandon. They took part shamelessly, of course. But their antics were merely symptoms of a deeper problem.
Needless to say, this is not the perception in North America or Europe. It already looks as if the political response will be a massive assault on the workings of the free market. Socialism is coming back. One wants to weep. [My ellipses and emphasis]
